Want to See What Protectionism Looks Like? Look at Steel
Want a glimpse of what might happen if President Trump is successful in imposing tariffs on U.S. imports? Look at U.S. steel manufacturers.
Last May the Obama administration decided to impose tariffs, which is a tax, of up to 500 percent on certain steel imports from seven countries.
How did the U.S. steel industry respond to this lobbying victory? According to the Wall Street Journal, “Domestic steel companies have raised prices by as much as 50% on popular types of steel in recent months.”
The Journal notes that one company increased prices three times this year, after increasing them six times last year.
And investors, smelling protectionist profits, have also done well. As The Motley Fool observed, “Steel Stocks Soar After U.S. Slaps Anti-Dumping Tariffs on China.”
But it wasn’t just China, which faced the largest tariff, Brazil, South Korea, Russia, India, Japan and the U.K. were also on the sanctions list.
Because steel is used in so many products, those price increases—both from import tariffs and from U.S. steel price increases—will filter through the entire economy. The price of everything will be directly or indirectly affected.
China isn’t even among the U.S.’s top five steel sources. The International Trade Administration says that would be Canada, Brazil, South Korea, Mexico and Turkey, which together account for 59 percent of U.S. steel imports.
China exports more steel than the U.S. produces, according to the Economist, and only about 3 percent of those exports come to the U.S.
For its part, China said there was a worldwide glut of steel a few years ago (which is true) and so it cut its price to increase sales.
But the U.S. said the Chinese government was subsidizing the steel companies, allowing manufacturers to sell below their cost to produce the product.
Such complaints would carry a little more weight if the U.S. government didn’t subsidize lots of companies and industries. GM and Chrysler received huge bailouts from the federal government during the Great Recession. President Obama handed out billions of dollars in subsidies and loan guarantees to various green energy companies, especially wind and solar energy.
China is in direct competition with U.S. wind and solar companies. Do the Chinese have a right to complain about that?
One important lesson from the steel tariffs is that companies and industries that beg for and receive government protectionism often take advantage of the situation by pushing up prices as quickly and as high as possible—just like some steel manufacturers.
Another lesson is that U.S. consumers, both businesses and individuals, must pay a lot more in taxes or artificially high prices.
That’s not making America great again, just more expensive—and a lot less competitive.